Taxation - Income TaxQuestion 5574 of 146
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4. The income of rent and interest will be chargeable to tax in the hands of -

Options

AMr. A - ` 2,15,000 as income of spouse clubbed under clubbing provisions.
B. Mr. A - ` 2 lakh under income from House Property (HP) and Mrs. A - ` 15,000 under Income From Other Sources (IFOS).
CMrs. A - ` 1,36,640 under income from House Property and ` 15,000 under IFOS.
DMr. A - ` 1,36,640 under income from HP and Mrs. A - ` 15,000 under IFOS. (2 Marks)
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Correct Answer

Option DMr. A - ` 1,36,640 under income from HP and Mrs. A - ` 15,000 under IFOS. (2 Marks)

All Options:

  • AMr. A - ` 2,15,000 as income of spouse clubbed under clubbing provisions.
  • B. Mr. A - ` 2 lakh under income from House Property (HP) and Mrs. A - ` 15,000 under Income From Other Sources (IFOS).
  • CMrs. A - ` 1,36,640 under income from House Property and ` 15,000 under IFOS.
  • DMr. A - ` 1,36,640 under income from HP and Mrs. A - ` 15,000 under IFOS. (2 Marks)

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Detailed Solution & Explanation

As per Section 27(i) of the Income-tax Act, 1961, if an individual transfers a house property to their spouse without adequate consideration, other than in connection with an agreement to live apart, the transferor is deemed to be the owner of the house property.
Therefore, the rental income from the transferred property is chargeable to tax in the hands of the transferor, Mr. A.

Let us compute the taxable income from house property:
Gross Annual Value (Rent received) = 2,00,000\displaystyle ₹2,00,000
Less: Municipal Taxes paid = 4,800\displaystyle ₹4,800
Net Annual Value (NAV) = 2,00,0004,800=1,95,200\displaystyle ₹2,00,000 - ₹4,800 = ₹1,95,200
Less: Standard Deduction under Section 24(a) @ 30% of NAV = 30%×1,95,200=58,560\displaystyle 30\% \times ₹1,95,200 = ₹58,560
Taxable Income from House Property = 1,95,20058,560=1,36,640\displaystyle ₹1,95,200 - ₹58,560 = ₹1,36,640

This rental income of 1,36,640\displaystyle ₹1,36,640 is clubbed in the hands of Mr. A under Section 64(1)(iv).

As for the interest of 15,000\displaystyle ₹15,000 earned on the fixed deposit of the rental income, it is income arising from the accretion of the transferred asset (i.e., income on income), rather than from the transferred asset itself. Under Section 64(1)(iv), only the income from the transferred asset is clubbed, not the income from the accretion. Hence, the interest income of 15,000\displaystyle ₹15,000 is taxable in the hands of the spouse, Mrs. A, under the head 'Income from Other Sources' (IFOS).

Hence, **Option D** is the correct answer.

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